Grasping Reality on TypePad, by Brad DeLong

At the zero lower bound on safe nominal short-term interest rates, an expansionary fiscal policy impetus of d percent of current GDP will:

1. raise current output by (μ)d,
2. raise future output by (φμ)d, and
3. raise the debt to GDP ratio by a proportional amount ΔD = (1 - μτ - μφ)d,

where μ is the Keynesian multiplier, τ is the tax rate, and φ is the hysteresis coefficient.

I missed this six months ago:

Julie Verhage: The Two Big Economic Policy Failures That John Maynard Keynes Would Be Disappointed by Today: "The famous economist isn't around for us to ask him...

...but here is probably the next best thing. Robert Skidelsky... said... Keynes would have found two things upsetting. First, he would be frustrated with the lack of  precautions taken to prevent a huge financial crash like the one we saw in 2008. Secondly, Lord Skidelsky believes Keynes... would have wanted a more 'buoyant response,' he said.  Specifically, he doesn't think Keynes would have liked the Federal Reserve's quantitative easing....

I really, truly am obsessing about this to excess, am I not?

But it's overwhelmingly weird: conclusions that seem to me obvious and inescapable, nailed-down and air-tight, ironclad and titanium do not seem to have any force with the deciding members of the FOMC:

Notes for My Comment at the URPE-AEA Session: Causes of the Great Recession and the Prospects for Recovery

• Presiding: Fred Moseley
• David M. Kotz and Deepankar Basu: Stagnation and Institutional Structures
• Robert McKee [Michael Roberts]: Recessions, Depressions, and the Rate of Profit
• Mario Seccareccia and Marc Lavoie: Understanding the Great Recession: Keynesian and Post-Keynesian Insights
• Discussants: Robert J. Gordon, Brad DeLong, David Colander

Must-Read: Jared Bernstein: 2015 Was Solid Year for Job Growth: "Payrolls were up 292,000 in December and the unemployment rate held steady at a low rate of 5%...

Over at Huffington World Post: Future Economists Will Probably Call This Decade the 'Longest Depression': Posted: 01/08/2016 9:28 am EST Updated: 49 minutes ago: Economist Joe Stiglitz warned back in 2010 that the world risked sliding into a 'Great Malaise.' This week, he followed up on that grim prediction, saying, 'We didn't do what was needed, and we have ended up precisely where I feared we would.' READ MOAR

An interview with Jan Hatzius I did last fall:

Brad DeLong is a professor of economics at UC Berkeley, where his research focuses on financial crises and 20th century macroeconomics, as well as the political economy of monetary and fiscal policy. He has taught at Harvard University and served as Deputy Assistant Secretary of the Treasury for Economic Policy under the Clinton Administration. Below, he and Goldman Sachs Chief Economist Jan Hatzius discuss risks around liftoff and the structural downshift in rates.

Sokrates: You remember how I used to say that only active dialogue--questions-and-answers, objections-and-replies--could convey true knowledge? That a flat wax tablet covered by written words could only convey an inadequate and pale simulacrum of education?

Aristoteles: Yes. And you remember how I showed you that you were wrong? That conversation is ephemeral, and very quickly becomes too confused to be a proper educational tool? That only something like an organized and coherent lecture can teach? And only something like the textbooks compiled by my lecture notes can make that teaching durable?

Aristokles: But, my Aristoteles, you never mastered my "dialogue" form. My "dialogue" form has all the advantages of permanence and organization of your textbooks, and all the advantages of real dialectic of Sokrates's conversation.

Paul Krugman's Respectable Radicalism politely points out (at least) one dimension along which I am a moron.

Let me back up: Here in the United States, the current framework for macroeconomic policy holds that the economy is nearly normalized, that further extraordinary expansionary and fiscal policy moves carry "risks", and that as a result the right policy is stay-the-course. I was arguing that the Economist Left Opposition demand--for substantially more expansionary monetary and fiscal policies right now until we see the whites of the eyes of rising inflatio--was soundly-based in orthodox lowbrow Hicks-Patinkin-Tobin macro theory. That is the macro theory that economists like Ben Bernanke, Janet Yellen, and Stan Fischer taught their entire academic careers.

Paul Krugman points out—politely—that I am wrong.

Over at Equitable Growth: Talk to people at the Federal Reserve these days about how they feel about the institution's performance during the seven very lean years from late 2008 to late 2015, and they tend to be relatively proud of how the institution performed. Almost smug.

Why? Well, let me pull out my old workhorse-graph of the four salient components of U.S. aggregate demand since 1999: READ MOAR

Over at Equitable Growth: Larry Summers: What Should the Fed Do and Have Done?: "The Federal Reserve... has strongly signaled that it will raise rates...

...Given the strength of the signals that have been sent it would be credibility-destroying not to carry through with the rate increase, so there is no interesting discussion to be had about what should be done on Wednesday...

This seems to me to be wrong: credibility that one will stubbornly pursue bad policies is not worth gaining, or preserving. READ MOAR

Over at Equitable Growth: Olivier Blanchard, at least, has said that the secular decline in global real interest rates and increased macro instability means that the 2%/year inflation target was greatly ill-advised and needs to be raised to 4%/year. But, among the great and good who staff the finance ministries, central banks, and international organizations these days, he is nearly alone. And the other pieces of the policy puzzle that might get us out of our zero-lower-bound-secular-stagnation pickle--aggressive redistribution via taxes and transfers, higher debt levels for reserve currency-issuing sovereigns with exorbitant privilege to boost the supply of safe assets, reducing risk premia by governments' assumption of the role of entrepreneurial risk-bearer of last resort, international organizations that emerging markets regard as friends rather than enemies--are nowheresville. READ MOAR